FPIs take out Rs 9,800 crore in October on rise in US bond yields, geopolitical uncertainties

Foreign investors have pulled out nearly Rs 9,800 crore from Indian equities this month so far owing to a sustained rise in US bond yields and the uncertain environment resulting from the Israel-Hamas conflict. This came after Foreign Portfolio Investors (FPIs) turned net sellers in September and pulled out Rs 14,767 crore. Before the outflow, FPIs were incessantly buying Indian equities in the last six months from March to August and brought in Rs 1.74 lakh crore during the period.

This inflow was largely due to the reduction in US inflation from 6 per cent in February to 3.2 per cent in July. The temporary pause in the US Federal rate hike from May to August also played a role, Kislay Upadhyay, smallcase manager and Founder of FidelFolio Investments, said. Going ahead, the trajectory of FPIs' investments in India will be influenced not only by global inflation and interest rate dynamics but also by the developments and intensity of the Israel-Hamas conflict, Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Adviser India, said. Geopolitical tensions tend to elevate risk, which typically hurts foreign capital inflows into emerging markets like India, he added.

According to the data with the depositories, Foreign Portfolio Investors (FPIs) sold shares to the tune of Rs 9,784 crore this month (till October 13). The recent flow trend points towards FPIs adopting a cautious stance towards investing in emerging markets like India.

The sustained rise in US bond yields was the principal factor driving the FPI selling, V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.
Additionally, the prevailing uncertain environment resulting from the Israel-Hamas conflict, which has generated heightened geopolitical tension in the Middle East region also played a main factor in FPIs selling, Morningstar's Srivastava said. This development has sparked concerns about potential disruptions in oil-related activities. This could give rise to inflationary shock and FPIs seem to be bracing for it, smallcase's Upadhyay said.

As Israel engages and prepares for a possibly long-drawn battle, FPIs perceive this as an apt time to book profits and show risk-off after a few months of exuberance, he added. In the current scenario, experts believe that there could be an enhanced focus on safe-haven assets such as gold and US dollars. On the other hand, FPIs invested Rs 4,000 crore in the country's debt market during the period under review. With this, the total investment by FPIs in equity has reached Rs 1.1 lakh crore and over Rs 33,000 crore in the debt market this year so far. In terms of sectors, FPIs continued to sell in financials, power, and IT, however, they continued to buy capital goods and automobiles.